Many multifamily buyers and sellers have been surprised at just how quickly, and how steeply, cap rates have fallen this year.

Several factors have conspired to drive down cap rates a little more each month this year. A wealth of opportunity funds looking for acquisitions has resulted in frenzied bidding wars for Class A assets. Low-priced debt from Fannie Mae and Freddie Mac has allowed more deals to pencil out. And stabilizing fundamentals have inspired confidence in the future value proposition.

But just how sustainable is this cap rate compression? Most multifamily finance professionals don’t expect it to last into next year. In a poll of 168 senior-level professionals conducted by Apartment Finance Today conducted in August, half of all respondents expected cap rates to stay flat in 2011, while more see cap rates rising (27 percent) than falling (23 percent) next year.

“It has to level off,” says Mike McRoberts, national head of production and sales for McLean, Va.-based Freddie Mac. “One thing that’s going to drive cap rates is availability of product, and we’ve already seen an increase in availability of product. That has to have an upward pressure on cap rates.”

In the first six months of the year, there were about 29 multifamily transactions of $10 million or more with cap rates of 6 percent or less. Yet, since the beginning of July—in a span of just over three months—there have been 28 such transactions, according to market research firm Real Capital Analytics.

These range from the very large—last month’s $193 million acquisition by CBRE of the Resort at Pembroke Pines in Hollywood, Fla., drew a 6 percent cap—to smaller assets, such as the $25.5 million acquisition by Trinity Property Group of the 76-unit Clay Park Towers in San Francisco, which had a 5 percent cap rate.

While some of today’s cap rates seem aggressive, when you factor in the price of debt from Fannie and Freddie—around 4 percent for a 10-year loan, and sub-4 percent for a seven-year loan—it makes sense.

“If you’re buying a quality property in a core market with a going-in cap rate around 6 percent, and you’re getting 75 percent leverage at 4 percent, you’re getting huge positive leverage,” says David Rifkind, principal and managing director of Los Angeles-based George Smith Partners. “You’re spitting out cash flow.”

Some in the industry are marveling that in the high-barrier coastal markets, there’s been a return to the cap rates seen at the height of the last boom period. But one notable difference is that cap rate compression is only really seen on the upper echelon of deals in select markets.

“I think we’ll continue to see the cap rate differentiation that we hadn’t seen four or five years ago,” says Michael Berman, president and CEO of Needham, Mass.-based CWCapital. “We’re seeing cap rates of 4 percent for really fine, triple A properties, but B and C properties aren’t seeing that kind of compression.”

The high-barrier coastal markets have experienced the biggest cap rate declines. But some believe that the dynamic will soon begin to emerge in the Midwest as well.

“On the coasts, it’s always a little bit of an anomaly. In the Midwest, we’re not seeing a lot of transactions of  stabilized, well-occupied properties yet,” says Greg Cazel, executive vice president of Midwest markets for Boise, Idaho-based lender A10 Capital. “But as we continue to see leasing and occupancy strengthen like we’ve seen for the past 18 months, I think cap rates are going to continue to come down.”

Everyone knows, however, that today’s interest-rates can’t last, and that it’s impossible to time the bottom. The economy will enter into an inflationary period sooner or later. “Based on the federal deficit and the capacity of the economy, at some point we’re going to be back in an inflationary period,” says Berman. “And when that happens, cap rates will drift up again.”

But for now, interest rates continue to fall and the pace of transactions continues to rise. The fourth quarter is shaping up to be the kind of “busy season” that we haven’t seen in a few years. Carpe Diem.